Trade credit in China in the early 1990s

Abstract

We investigate whether, in the early 1990s in China, trade credit changed gradually, from a socially problematic Triangle Debt situation to a financially sound situation to which existing theories of trade credit are applicable. Econometric modeling confirms anecdotal observations of a Triangle Debt problem in the early stage of our sample period. It is also confirmed that the problem vanished and the nature of trade credit in China moved so as to approximate that in developed or Western economies by the later stage of our sample period. Our models also show that intensified market competitiveness in the early 1990s was likely to be the factor leading to the change.